OECD Insights

OECD Insights are a series of reader-friendly books that use OECD analysis and data to introduce some of today’s most pressing social and economic issues. They are written for the non-specialist reader, including interested laypeople, older high-school students and university freshmen. The books use straightforward language, avoid technical terms, and illustrate theory with real-world examples. They also feature statistics drawn from the OECD’s unique collection of internationally comparable data. Online, you can find a number of special features to enhance each book’s educational potential.

How did the sharpest global slowdown in more than six decades happen, and how can recovery be made sustainable? OECD Insights: From Crisis to Recovery traces the causes, course and consequences of the “Great Recession”. It explains how a global build up of liquidity, coupled with poor regulation, created a financial crisis that quickly began to make itself felt in the real economy, destroying businesses and raising unemployment to its highest levels in decades. The worst of the crisis now looks to be over, but a swift return to strong growth appears unlikely and employment will take several years to get back to pre-crisis levels. High levels of public and private debt mean cutbacks and saving are likely to become the main priority, meaning the impact of the recession will continue to be felt for years to come.

The financial crisis of late 2008 was the spark for the most serious economic slowdown since World War II. The Great Recession, as some have called it, will continue to overshadow economies for years to come through legacies such as unemployment and public debt.

The suddenness of the financial crisis caught many unawares. In reality, financial pressures had been building for years as funds flooded from emerging economies like China to developed economies like the US. This was exacerbated by banks’ increasingly reckless taste for risk.

The recession had its roots in financial centres like New York and London, but it swiftly spread throughout the global economy. As the scale of the calamity became clear, governments took extraordinary measures to keep financial institutions afloat and stimulate economic demand.

When the crisis struck, employment in OECD countries was at its highest level since 1980, but the first victims of unemployment were the same groups as in previous decades such as the young and temporary workers. Employment takes longer to recover than output, and governments can play a role in helping those worst affected.

Pension fund assets dropped by over $5 trillion from $27 trillion during the crisis. The losses to benefits as a consequence will not affect all participants in pension funds equally, with older workers suffering most, while those in defined-benefit plans will probably be better off. Even before the crisis, though, there were calls to reform pensions.

In the eyes of many, the crisis and recession revealed gaping holes in the rules of the global economy. Financial markets are the most obvious target for new regulations, but other areas, too, have come under increasing attention, including tax and even the basic values of capitalism.

Regardless of the pace of recovery, the recession will have long-term economic and social consequences, some of which may not become fully apparent for years to come. To think about some of these long-term impacts, this chapter poses five questions for the future.